International Society of Primerus Law Firms

Private Employer is Not Prohibited from Refusing to Hire an Individual Because that Individual Has Claimed Bankruptcy

Written By: Thomas Paschos

Thomas Paschos & Associates, P.C.
Haddonfield, NJ

In Rea v. Federated Investors, — F.3d —, 2010 WL5094250 (3d Cir., Pa. December 15, 2010), Appellant Dean Rea filed a complaint in the United States District Court of the Western District of Pennsylvania alleging that Federated Investors violated 11 U.S.C. § 525(b) when it refused to hire Rea because he had previously declared bankruptcy. The District Court granted Federated's motion under Rule 12(b)(6) to dismiss for failure to state a claim, holding, in accordance with the majority of other courts to have addressed the issue, that § 525(b) does not create a cause of action against private employers who engage in discriminatory hiring.
By way of background, Rea filed for bankruptcy in 2002 and his debts were discharged in 2003. In 2009, Rea applied for employment with Federated through the placement firm Infinity Tech Services. Although it appeared after Federated interviewed him that Rea would be hired by Federated, Infinity later informed Rea that Federated had refused to hire him because of his bankruptcy.

The applicable law, Section 525 of the Bankruptcy Code, prohibits discrimination against an individual solely because he or she is or has been a debtor or bankrupt. Section 525(a) provides that the Government may not “deny employment to, terminate the employment of, or discriminate with respect to employment against” any person that has been bankrupt. (emphasis added). Section 525(b) provides that “No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt.

Federated moved to dismiss Rea's action, arguing that § 525(b) does not prohibit a private employer from refusing to hire an individual because that individual has claimed bankruptcy. Rea asserted that the Court was required to read § 525(b) broadly to effect its remedial purpose, and that under that expansive reading, § 525(b) does include such a proscription.

Noting that there was a lack of binding precedent to inform its determination, the District Court employed basic principles of statutory construction to reach its conclusion. The court noted that unlike section 525(a), Congress omitted the language prohibiting a private employer from “deny[ing] employment to” a person that has been bankrupt in section 525(b). As such, the Third Circuit affirmed the District Court’s holding, in accordance with the majority of other courts to have addressed the issue, that § 525(b) does not create a cause of action against private employers who engage in discriminatory hiring.
 

For more information on Thomas Paschos & Associates, P.C., please visit the International Society of Primerus Law Firms or www.paschoslaw.com.

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